Q1 2021 ADDvantage Technologies Group Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to be advantaged technologies group to reported fiscal 'twenty, one 'twenty 'twenty, one first quarter financial results conference call.
As a reminder, all participants are in listen only mode. On the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad share do you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Brett Maas Hayden. They are please go ahead. Please go ahead.
Thank you operator, we're joined today by Joe Hart, President and CEO as well as Jarrett Watson Chief Financial Officer before we begin todays call I'd like to remind you that this conference call may contain forward looking statements, which are subject to the safe Harbor provisions on the private Securities Litigation Reform Act of 1995. These forward looking statements include among other things statements regarding future events, such as the ability.
We have advantaged technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators as well as the future financial performance of advantaged technologies. These statements involve a number of risks and uncertainties participants are cautioned that these forward looking statements are only predictions and may materially differ from the actual future events or results.
A variety of factors such as those contained in advantaged technologies. Most recent report on form 10-K on file with the Securities and Exchange Commission.
Financial information presented on this conference call should be considered in conjunction with the consolidated financial statements and notes included in the company's press release issued earlier today and included in advanced technologies. Most recent report on form 10-K, the guidance regarding anticipated future results on this call is based on limited information currently available on advantage technologies, which is subject to change.
Although any such guidance and factors influencing it may change and manage technologies will not necessarily update the information as the company will only provide guidance at certain points during the year such information and speaks only as of the date of this call. During the call. We also may present, certain non-GAAP financial measures such as non-GAAP net income and certain ratios that are used with these measures in our press.
Release and in the financial tables issued earlier today, which are located on our website at various technologies Dot Com you will find a reconciliation of these non-GAAP financial measures with the closest GAAP financials and a discussion about why we believe these non-GAAP financial measures are relevant. These financial measures are included for the benefit of investors and should be considered in addition to and not instead of GAAP measures.
I would like to now turn the call over to Joe Hart, President and Chief Executive Officer of Advanced Technologies. Joe. Please go ahead.
Thank you Brett and thank you to everyone joining us on the call today.
It's been just over a month since we last spoke with the investment community.
During our full year fiscal 2020 earnings call late in December.
Since that time, we have continued our efforts to streamline our expenses and improve operational efficiencies and position our wireless business for growth and profitability ahead of an acceleration on the transition to five G on the wireless carriers.
The first fiscal quarter was impacted as it often is well on the typical seasonal challenges, including the winter weather the holidays and we further experience from COVID-19 related crew Quorum James in late November on the North.
November through March It was also a period when our high margin specialty work on the North <unk>.
Takes a hiatus and told the warm weather returns on the spring.
However, our confidence and optimism about the <unk> rollout has only been strengthened by some of the advancements in press releases, we've seen over the last 90 days.
We continue to believe that we will capture a meaningful share of new business opportunities as demand for five G accelerates.
And while this rollout has certainly taken longer than we anticipated due to the pandemic and other factors. We are now seeing clear and unambiguous signs that the rollout will happen in the second half of this calendar year.
We have seen a notable uptick in our sales and bid activity and we are seeing accelerating demand in anticipation of the <unk> rollout.
<unk> has yet to reach the desired levels.
In response, we are prudently ramping up our crude capacity in anticipation of expected demand.
Our confidence that we will play a meaningful role has been validated as we had been added to the preferred vendor list for several key carriers and we have been given strong indications that we may be the lead vendor in several large and important markets.
The recent FCC C band auction raised over $81 billion, that's both existing wireless and broadband carriers pursued the additional $3 seven to 3.98 gigahertz spectrum made available to help facilitate the expected five G growth and network capacity.
Needs.
We have multiyear service agreements in place with all of the major players in this auction.
And are well positioned to assist them in their growth plans throughout the southwest and Midwest regions.
In addition dish the newly approved fourth wireless carrier has reportedly secured leases on over 20000 existing tower sites owned by Crown Castle and gained access to over 300000 sites owned by vertical bridge.
According to fierce wireless reports dish is committed to build a cloud native five G nationwide wireless network and is committed to build at least 15000 sites to meet its minimum requirement to cover 70% of the U S population by mid 2023.
This initiative is on top of the ambitious plans on T mobile and others that's publicly reported.
We currently expect the second half of calendar 2021 to benefit from the higher volumes in our businesses scale to drive improvements in profitability on these expected levels.
We are encouraged by the slight uptick in Q1 revenue and on wireless segment of approximately $500000, particularly given the typical seasonality I mentioned earlier.
Additionally, while consolidated revenue declined 1.2 million year over year.
Gross margins were improved.
In fact, we generated the same $3 6 million and gross profit this Q1.
As in the prior year, even at lower revenue levels, reflecting the progress we have made in aligning expenses with revenue and improving our operational efficiency.
I am encouraged by what this portends for our second half of the year with improved operational efficiency on higher volume of work driven by all four carriers building out their networks at the same time to compete in <unk>.
In the telco side of our business.
Revenue was up 5% over the first quarter of last fiscal year.
We have entered into agreements with new customers and partners for the nave and Triton datacom businesses that give our salespeople access to new clients product lines and a much higher level of consignment based inventory to offer our customers.
This equates to better use of cash lower operating costs and reduced inventory.
Our sales teams at both companies have fully adjusted to the remote working environment and are selling at higher levels than in the past.
Our trading business is still being impacted by the nationwide shutdown on most offices and the move to remote work.
Our team has added new offerings and new clients to offset a great deal on that impact felt throughout the second half of last year.
We remain hopeful that the COVID-19 vaccine besides being the safeguard for the health and well being of many Americans will lead to a return to the office for most U S workers and they have a positive impact on the sale of enterprise network products in the second half of this year.
Importantly.
The work, we completed last year to rationalize our telco cost structure translated to a significant improvement in EBITDA contribution on those higher revenues for this portion of our business.
Our balance sheet remains quite strong following the actions we took in fiscal 2020 to bolster our overall cash position created on excess reserve in working capital in anticipation of accelerating <unk> infrastructure build out.
There is also an increased vigilance around managing our inventory.
As of the end of the first quarter, we had approximately $5 7 million in cash on our balance sheet.
We continue to expect that the <unk> transformation will begin in earnest in 2021.
And we remain confident in our abilities, our offerings and our position in the areas that we currently serve.
We are seeing increased activity from all of the carriers and the amount of capital expenditures anticipated as the <unk> expansion rolls out are significant.
Overall it has been a relatively uneventful few weeks since we last book.
However, we remain highly optimistic about the forthcoming opportunities in the second half of our fiscal year.
And we are confident that we are taking the right steps to capitalize on those opportunities.
In closing I'd like to thank those shareholders and institutional investors. It has not been an easy last two years.
We have rebuilt our telco businesses nave and Triton.
Sold off our legacy cable TV business Tulsa.
Quired, a new wireless services company in Fulton technologies, and lastly, pivoted, our business to be ready to grow with the coming wave of investment in the fifth generation of wireless technology.
Already and it is about to begin in a big way on the second half of 'twenty 'twenty one.
Thank you for your investment and for your support.
With that I'll now turn the call over to our Chief Financial Officer, Jerry on Watson for a more detailed review of our financial results. Jared. Please go ahead.
Okay.
Yeah.
Okay.
Yeah.
Jared watching your line is live.
Thank you Joe.
And thanks to everyone on the call.
Sales for the first quarter of fiscal 'twenty, 'twenty, one decreased to $12 $7 million from $14 million in the prior year.
$1 $6 million of this decrease came from our wireless segment as the group continues to experience the impact of COVID-19 on this business and five G delays in infrastructure spending from the major U S carriers.
This decline was offset by a nearly $340000 increase in revenue from our telco segment.
One of our telco subsidiaries Triton sales office telephone and IP equipment for enterprise networks and most large offices continue to be closed also as a result of the COVID-19 pandemic. However, we saw on overall sales increase this quarter from the telco segment slightly impacted by a decline in telco recycle sales.
Gross profit increased by $37000 to $3 $63 million compared with $3 five $9 million for the same quarter last fiscal year, despite the $1 $2 million decline in sales the.
The increase in gross profit was primarily due to the telco segment, our gross profit improved by $300000, which was partially offset by a decrease in the wireless segment gross profit of $264000 because of the segment saw a revenue.
Gross profit margin improved to 28%.
On 26 per cent for the prior first quarter.
As well as wireless margin improved 312 basis points and telecom margins improved 293 basis points.
Operating expenses decreased $84000 to 2.0 of $5 million for the quarter ended December 31, 2020, compared with $21.14 million for the same quarter last year, which was driven by cost reductions on our wireless segment.
Selling general and administrative expenses for the quarter increased $24 million to $3 $2 million compared with $2 $8 million for the same quarter last year. This increase was due to an investment in building out the sales team for our wireless group and noncash stock compensation.
Net loss for the quarter was $195 million or a loss of <unk> 16 per diluted share based on 12 4 million shares compared with a loss of $1 seven 2 million or a loss of 17 cents per diluted share based on 10 4 million shares for the same quarter last year.
Adjusted EBITDA was a loss of $1 $3 million for this first quarter of fiscal 2021, which was essentially flat to the same quarter last year.
Turning to our balance sheet.
Cash and cash equivalents were $5 $7 million as of December 31, 2020, compared with $8 $4 million as of September 32020, cash was primarily used to fund operations.
As of December 31, 2020, the company had inventories of $6 $2 million up from $5 $6 million at September 32020.
Outstanding debt went down by $1.3 million to $6 $7 million on December 31, 2020.
Apprised of $2 $8 million of our revolving line of credit to.
$2 $9 million of notes payable and $1 million of financing lease obligations compared to $8 million in September 32020.
Which was comprised of $2 $8 million of our revolving line of credit four point million $4 $1 million of notes payable and $1 $1 million on financing lease obligations.
At September 32020 notes payable were comprised of $1 $2 million from our primary banker, which correlates to payments that we receive from a $3.8 million promissory note and $2 $9 million of the PPP loans for which we have to apply for forgiveness.
Subsequent to year end, we renewed our revolving line of credit for one more year to a maturity of December 17, 2021, and we paid off the $1 $2 million note payable to our primary bank.
We continue to believe we are sufficiently capitalized with appropriate backstops to support near term business conditions until more normalized business conditions return.
This concludes the financial overview segment of our remarks, I will now turn the call over to the operator to facilitate any questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will share atone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any ts to withdraw.
Your question. Please press Star then two.
We will pause for a moment as callers join the queue.
Once again, if you have a question. Please press Star then one.
The first question comes from William Ballmer with S. H Advisory. Please go ahead.
Yeah. Thank you for the enlightened in a conference call on my only question really your last presentation was quite a interesting and thorough and you you've listed some guidance in that press release I mean in that presentation do you expect that that guidance will remain and it can have.
In effect.
For the zero 'twenty, one to 'twenty three as you mentioned I think on one of the later pages on the presentation.
Okay.
Yes.
Hello Hello.
Thanks for your question.
This is Joe Hart.
Hi, Ian.
Yeah can you hear me.
Yes.
Yes.
Did you get my question.
I did I did but I think more on this business is going is that.
While the big ramp up of construction side G has been.
All I'll say on idle right you read you.
See all the TV commercials, and you read all the press and you say well <unk> is everywhere well right, it's not all marketing and Theyre trying to sell their services.
And of the <unk> way it typically takes about three to five years at a minimum.
For the carriers to upgrade all of their sites in every state across the country.
On to the new technology, mainly which are repeated pattern Chung <unk> <unk> et cetera.
No.
We in fact are now seeing the very front end of that construction wave just starting to happen and price.
While T mobile has been building the other carriers have been relatively silent and relatively low level of activity. We are now seeing that ramp start here at the moment and then it'll kick in in a fairly big way April May June.
And then it will take off and stay that way sure somewhere between three to five years, it's predictable.
Something that has to happen.
Just upgrade on a few of your sites to five G. Oh.
You have to upgrade the mall because otherwise your subscribers cannot get roaming service at <unk> levels across the nation as they travel in their cars. They take trips you know they drive around their neighborhoods.
You have to do them on will at some point so that way that wave is just starting here so on more construction aspect.
And you know, where we're really nicely positioned to take advantage. So while we say that our business is going to pick up in the second half of our year.
It doesn't mean, it's going to drop off because the.
The fiscal year and then there is on pause than we have on slow and then we popped back up right.
Once this wave starts it's going to continue for four on.
The next 345 years.
It's very predictable.
I'm not the only source of this some not on Oracle, it's just a.
Continued pattern from <unk> to <unk>.
Okay. One more quick question on the anticipation of the huge growth that you're entering.
Or is there a potential of a money raise and it's a form of an S. One or 425 or some other or a T N E and H T. M is there is that on the table on down the road as this thing ramps up it may be in the next six to nine months, where you'd be doing a financing do you think.
Well I think we saw weak.
We published on strategy that we put on our website.
I presented last summer at the LD Micro conference on our growth strategy on <unk>.
Growth strategy does.
Included in.
An M&A component to it.
We do believe that based on any candidates that we come across them.
We look at adding to our portfolio that there'll be a need for additional capital to fund any of those acquisitions. So we do anticipate that there will be some need to raise capital.
As we move forward here with our growth plan.
We also have all very publicly filed S. Three that's been out there now for a little more than six months, where we occasionally sell some shares through the shelf registration. So you know kind of a combination of things.
Probably a natural evolution and it's it's part of our combined organic and M&A growth plan.
Great.
In our publisher a little financial publication since 84, and we're expecting to write you right you guys up on our next newsletter, which will be out soon so I like what I hear I like what I see I like the industry. It's a great great situation for us. So thank you very much and I like your professional presentation as well. Thank you.
Thank you.
Thank you.
The next question comes from Sean Johnson, a private Investor. Please go ahead.
Hey, Good morning. This is Sean can you hear me clearly.
Yes, good morning, Sean.
Hey come on Hey, just want to say, thank you to Mr. Hart.
Excellent presentation and I really appreciate the clarity on.
You know just kind of explain it typically takes about three to five years.
You know minimum to kind of make that make that upgrade are you now can kind of get to full fruition you know because a lot of puts drive around we see all the infrastructure.
I thought I think that was that was great. My question is I think the last presentation you guys put out in the summer was fantastic.
Do you know if you guys plan to maybe a relief another investor presentation.
Anytime soon.
The last one you guys put out was fantastic and that's my question. Thank you so much.
Okay.
I don't think we have I don't think we have a plan to to issue another investor presentation on.
It's it's.
It's an interesting idea on.
I think that we are at the point, where you know there will be some.
Additional contracts there will be some additional new business debt.
At the appropriate times will be announced simple advance and you know that'll be assuming them. All material is something that we have debt we have to publish book.
Hmm.
Yeah.
I got to be a little bit cryptic here.
But as you are right on growth.
Growth plans on hold you know we the most publicly disclose that information and you know it may be a timing thing to publish an update to our investor presentation and in a couple of months time, but.
Personally to maintain our credibility with the investors I would like to wait until we have some material.
Growth.
In our hands before we start making any.
Any additional promises for the future.
Totally understood.
Makes it makes perfect sense. Thank you so much on I'm, sorry for taking my questions. Thank you so much.
Thank you.
Once again, if you have a question. Please press Star then one.
There are no more questioners in the queue. This concludes the question and answer session I would like to turn the conference back over to management for any closing remarks.
This is Joe I would just like to.
Thank you everybody for joining the call today and we appreciate your interest and.
Your investment and we feel a strong obligation to get this business.
Back to a share profitability and growth on all so that we can now support the confidence that investors have shown an advantage technologies. So thank you very much for being on the call today.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
Yes.
Yeah.
Right.
Yeah.
Yeah.
Yeah.
Yeah.
[music].
Yes.
[music].
On them.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Yeah.
Yeah.
Okay.
[music].
Okay.
Yeah.
Yeah.
Okay.
Yes.